The mycash.ie quick guide to income protection

Most people look to their financial assets to give them comfort and they usually reckon their biggest asset might be their house or some other investment. But unless you are financially independent and living off rental or dividend income from your investments, your most important asset is your income.

It is the level and security of your income that dictates your lifestyle, your ability to raise loans and service any loans you may already have. Yet, many people overlook the importance of securing their income.

Income protection or permanent health insurance (PHI) gives you an income if you become unable to work through illness, injury or disability. Unlike critical illness insurance, which pays you a one-off lump sum, an income protection policy will give you a continuous income throughout what would have been your working life until you reach your nominated retirement age (NRA).

Income protection is crucial if you are self-employed and, even if you are in employment, you should be aware of your company’s policy on sick pay. For employers, PHI is a potentially excellent benefit for staff and can form part of the employment package. The employer will also be able to write off any premium against corporation tax.

Tax relief

PHI premiums are fully tax deductible for an individual (up to 10% of annual salary). So, for example, if your premium is €100 per month and you are paying tax at 41%, the effective cost is €59. In the case of your needing to claim, you will receive your benefit net of tax just like you would your salary. Employers likewise can claim tax relief on premiums paid on behalf of their employees.

Getting a quote

Mycash.ie has a live income protection quote engine. Just enter your details to get an instant quote.

The level of your premium will depend on a number of factors:

Your age: The older you are, the more likely you are statistically to make a claim and this is reflected in your premium. You may have to undergo a medical to accompany your application.

The amount of benefit: The higher this is, the higher the premium. There are restrictions on the amount of benefit allowed. For self-employed, the maximum for Friends First, for instance, is 75% of the first €125,000 of earnings plus 33% of the remainder. If you are entitled to social welfare benefits then this is reduced by the equivalent of the disability allowance, currently €9662. In all cases there is a maximum benefit of €175,000 per annum. Go to the mycash.ie Income Protection - Maximum Benefit simulator to find out exactly how much applies in your case.

Your retirement age: Your benefit will be paid up until the age you plan to retire. The older this is, the more your premium. There are a range of retirement age choices (55, 60, 65). The older you are when you plan to retire the longer the term of the policy and consequently the more expensive the premium.

Your occupation class: Your employment is categorised according to the risk associated and this will affect your premium. Check your classification from this list of occupation classes.

The deferred period: If you fall ill or get injured you can choose the deferred period after which you will paid benefit: the longer the deferred payment period, the lower your premium. Self-employed people will usually choose a deferred period of 13 weeks as their income will cease very soon after they are unable to work. Employed persons will usually choose a period that coincides with the point at which the employer ceases to pay them and therefore must revert to the disability allowance.

Indexation: You can increase your benefit annually in line with inflation but your premium will reflect this.

Your quote will either be reviewable by the provider either annually or every five years or guaranteed for the duration of the plan. In some cases there are options to increase your benefit without supplying additional medical evidence.